Rigging the markets and getting away with it every time.
By Russ Martens and Pam Martens of Wall Street on Parade
Three years ago this month the U.S. Department of Justice brought felony charges against two of the largest Wall Street banks, JPMorgan Chase and Citigroup, for their involvement in rigging foreign currency markets. On the same date, two foreign banks, Barclays PLC and the Royal Bank of Scotland (RBS), were charged with felonies in the same matter. A fifth bank, UBS, was charged with a felony for its role in rigging the interest rate benchmark known as Libor. All five banks pleaded guilty to the charges.
Citigroup was fined $925 million by the Justice Department for its foreign currency conduct that ran from as early as December 2007 until at least January 2013, roughly five years. JPMorgan was fined $550 million for rigging activity that ran from as early as July 2010 to January 2013, about two and a half years. The offenses the banks were charged with pertained to their foreign currency traders engaging in chat rooms with traders from competitor banks, sharing confidential customer order information in order to rig foreign currency markets and boost profits for their firms.
Somehow, Goldman Sachs slipped through the Justice Department’s net. It was never charged with a felony by the Justice Department. Now, three years later, the Federal Reserve and the New York State Department of Financial Services (DFS) have imposed a combined modest fine of $109.5 million against Goldman Sachs for essentially the very same conduct that resulted in Citigroup and JPMorgan Chase becoming felons and paying much steeper fines.
The Fed’s consent order with Goldman Sachs is slim on details but the DFS consent order describes dozens of instances where Goldman traders shared customer information and/or overtly attempted to manipulate the foreign currency market over a period of about 5 years from 2008 to early 2013. (Read the explicit examples here.)
The press release from the DFS sounds extremely similar to the charges leveled by the Justice Department against Citigroup and JPMorgan on May 20, 2015. The DFS stated:
“The DFS investigation found that from 2008 to early 2013, Goldman foreign exchange traders participated in multi-party electronic chat rooms, where traders, sometimes using code names to discreetly share confidential customer information, discussed potentially coordinating trading activity and other efforts that could improperly affect currency prices or disadvantage customers. This improper activity sought to enable banks and the involved traders to achieve higher profits from execution of foreign exchange trades, sometimes at customers’ expense…
“Although a senior member of Goldman Sachs’ Global Foreign Exchange Sales Division raised concerns about the sharing of customer information, there is no evidence the supervisor took any steps to escalate to Goldman Sachs’ compliance function any of these serious concerns.”
Why was the foreign exchange case against Goldman relegated to the Federal Reserve (the U.S. central bank that is known for its coziness with Wall Street) and the DFS, a state agency, instead of being handled by the Justice Department’s criminal enforcement division that has the power to level felonies? This is just one more of those mysteries that habitually enshrine a fog around the meting out of justice on Wall Street. But there is one previous case that comes to mind where Goldman Sachs made out very well under the Kindly Uncle treatment of the Federal Reserve…